The first Friday of most months brings a new chapter in the U.S. government’s running chronicle of economic health: The monthly jobs report. It’s a list of numbers that calls forth so many widely varying responses that it can seem like a nerd’s Rorschach test. Stock and bond markets gyrate in response to it. Central bankers parse it for policymaking guidance. It even provokes the occasional political brawl. In many months, different parts of the data seem to support contradictory points of view. To understand the statistics it helps to know why and how each number is compiled. But even then it may be useful to keep more than a few grains of salt handy when you hear huge conclusions being drawn.
The number of people filing for unemployment benefits has fallen to levels associated with a healthy labor market. Fewer people are getting fired than during the peak of the boom years in 2006. Private employers have been steadily adding jobs for four years, and hiring has rebounded from a slowdown in late 2013 and early 2014. The share of people working part-time rather than full-time for economic reasons is slowly falling. While such data are encouraging, the participation rate — which measures those working or looking for jobs — is hovering near its lowest since 1978. That’s clouding the Federal Reserve’s view on labor market progress. Though retirements have caused part of the decline, Fed Chair Janet Yellen has said discouraged workers are probably abandoning the workforce and further depressing the rate — a sign of economic slack. What’s more, wages have been slow to accelerate and are increasingly taking center stage.
Two data points get the most attention when the U.S. Bureau of Labor Statistics releases its monthly report on the employment situation: the unemployment rate and the number of jobs added or lost. The BLS calculates unemployment rates by surveying people over the age of 16 who aren’t in the military, in prison or in mental hospitals. They are asked whether they are currently working and, if not, whether they have searched for a job in the last four weeks. Those who have stopped looking for work — whether because they have retired or because they have given up hope of finding a job — are considered outside the labor force. The data come from the Current Population Survey, which polls about 60,000 households every month. In addition to the unemployment rate, the CPS, which is commonly known as the household survey, is also the source of data on how many people are working part-time vs. full-time, as well as information on the age, gender, and racial composition of the labor force. Even though the household survey counts how many people are working, the headlines about the number of jobs gained or lost each month come from the Current Employment Statistics program, which surveys about 145,000 business establishments and government agencies. It also uses models to estimate how many new businesses are born and how many shut down each month. Known to most as the establishment survey, the CES produces data on the number of people of working in each industry, how much they are paid, and how many hours they work. The details of the household survey are helpful for understanding the changing nature of the workforce in terms of age, gender, race, and education; the details of the establishment survey reveal which industries are growing and shrinking.
Many analysts think the focus on monthly changes is misleading. The total number of people working changes by only about 0.15 percent each month, while the initial estimates of monthly changes are regularly revised by about 50 percent in either direction. The seasonal adjustment algorithm can introduce even more errors. Analysts also disagree on how many jobs the economy needs to create in order to reach and then maintain full employment. Their estimates depend on assumptions about population growth, aging, and immigration. These disagreements have real-world consequences since they affect whether Fed policy makers decide to ease or tighten up financial conditions.
The Reference Shelf
- Bloomberg Visual Data presentation, “What the Jobs Report Really Means.”
- BLS frequently asked questions guide to measuring unemployment.
- BLS Handbook of Methods.
- Federal Reserve Bank of Atlanta Jobs Calculator and Spider Chart.
- Federal Reserve Bank of Chicago Letter: “Estimating the trend in employment growth.”
- International Monetary Fund working paper: “Labor Force Participation and Monetary Policy in the Wake of the Great Recession.”
- Federal Reserve Bank of Philadelphia special report: “On the Causes of Declines in the Labor Force Participation Rate.”